Analyst career concerns, effort allocation, and firms information environment

• Main Authors: HARFORD, Jarrad, JIANG, Feng, Rong WANG, XIE, Fei
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: Sell-side analysts; Effort allocation; Limited attention; Career concerns; Earnings forecast; Stock recommendation; Firm information environment; Labor market outcomes; Finance and Financial Management; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5960; https://ink.library.smu.edu.sg/context/lkcsb_research/article/6959/viewcontent/Analyst_Career_Concerns_2018_pp.pdf
• Institution: Singapore Management University

Analysts strategically allocate more effort to portfolio firms that are relatively more important to their careers. Thus, the other firms the analysts cover indirectly affect a firm’s information environment. Controlling for analyst and firm characteristics, we find that an analyst makes more accurate, frequent, and informative earnings forecasts and recommendations for firms ranked higher within her portfolio based on proxies for importance to institutions. A firm’s relative rank widely varies across analysts, but its information environment improves when a larger proportion of analysts consider it to be relatively important. Analysts experience more favorable career outcomes when strategically allocating their efforts.